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ECONOMIC SYSTEMS - Coggle Diagram
ECONOMIC SYSTEMS
TRADITION-BASED ECONOMIC SYSTEMS
Nowadays, production is constantly changing
Why?
Because of the technological innovations
They experienced a little change
Preserving the community < incorporating new practices that would lead to more economic growth
There are groups whose economic activities are still based on tradition
Production is restricted to self-consumption and subsistence
Households follow these principles
Purchase few goods and consume what they produce
They generate little surplus.
Their production is limited to achieving self-sufficiency.
AUTHORITY: THE CENTRAL PLANNING SYSTEM
The state make decisions on what to produce
Before, this system was most developed in communist countries
The Soviet Union and China
The main aim
To achieve a greater social equality
The state makes predictions based on a set of economic objectives
They determine which goods or services they should produce
This system is not always efficient.
The state’s predictions can turn out to be wrong
The only country today is North korea
Other countries have implemented reforms
MIXED ECONOMY SYSTEM
Most countries have it
Main aims
To avoid the negative effects of the unequal distribution of wealth in a free market
To avoid the lack of efficiency that characterises authority-based systems
The state acts as an authority to help guarantee equal opportunities
It collects taxes. It invests in public goods and services
CAPITALISM AND THE FREE MARKET SYSTEM
Capitalism
Private ownership
Investment of capital in economic activity
In order to maximise potential profits
The decision regarding what to produce is determined by the economic agents
Free market
It regulates the production and sale
Products and services are based on the prices established by supply and demand
Characteristics
Price
Value assigned to a product or service
Supply
Products available on the market for a specific price
Demand
Products or services that consumers want to buy for a specific price
2 variables
Prices decrease
Suply high
Suplus
Demand low
Prices increase
Demand high
Suply low
Shortage
Competition
Produce a product or service at the lowest possible cost.
Paying the lowest possible price for the product or service